A/T SHORT OUTLINE
WHAT CONDUCT IS ILLEGAL
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
Central Role for Economic Analysis
a. Economic effects: collusion or exclusion – focus on inc. prices, dec. output, loss of
innovation
b. Substitution/Switching: demand elasticity
c. Entry
d. Surplus – consumer or producer (most juris favor consumers)
Collusive Effects – directly impairs mkts by coordinated activity btwn firms w/ mkt
power to reduce own output
Exclusionary Effects – indirectly impair mkts by raising rival costs; single firm or
collusive (cause others to reduce their output)
What factors effect if corporation will comply w/ rules:
Legal Standards
a. Per se
i. Evidence of a/c effect not req’d; presumed w/ no excuses allowed.
ii. Used when have experience w/ the sort of conduct under consid
iii. Makes most econ sense when: prohib conduct would likely harm competition
severely, D will frequently claim conduct is reasonable; little pro-competitve
conduct will be deterred
b. Rule of Reason, Quick Look – burden shifting, efficiencies.
c. Arg for more lenient rule – false positives more costly b/c deters precompetitive
conduct and mkt power likely to be temporary
d. Arg for less lenient rule – mkt power results in immed harm and is often long-lasting
ANTITRUST INJURY REQUIREMENT – Brunswick Corp v. Pueblo Bowl-O-Mat (1977)
a. Arose at time of signif econ change – mid-70s see rise of foreign competition
b. Injury must be the sort that A/T laws sought to regulate – protect competition, not
competitors
JTC Petroleum v. Piasa Motor Fuels (7th Cir 1999) – exclusionary group boycott
a. 2 level cartel – producers and applicators –A gets P to enforce and to exclude JTC
b. Justification a pretext b/c were paying in cash
Bell Atlantic v. Twombley (2007) – elevated pleading requirement
a. Complaint must rise above speculative level – req’s some facts suggesting
agreement.
ANALYSIS STEPS
a. Step 1 – concerted or exclusionary action
b. Step 2 – type of restraint/theory of anticompetitive harm
c. Step 3 – determine the mkt and mkt share allocation.
HORIZONTAL AGREEMENTS
I.
II.
Sherman Act S.1 – 2 elements: “contract, combination, conspiracy” & “restraint of trade”
Per Se Ban on Price-Fixing
a. Trenton Potteries (1927)
i. Aim and result of every price fixing is the elimination of 1 form of
competition – can have no benefit to competition; thus no further analysis is
necessary
ii. “Reasonable” price today may be unreasonable tomorrow
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A/T SHORT OUTLINE
b. Appalachian Coal – no monop menace b/c no mkt power – “honest effort to remove
abuses”
c. US v. Socony-Vacuum Oil Co (1940)
i. Per se rule clearly established for ALL price-fixing
ii. Need only to have intent (FN59) – not having mkt power is not a defense
d. Horizontal Agreements Subject to Per Se Condemnation
i. Price-Fixing – entire price or one term (incl. credit terms)
ii. Output Restriction
iii. Market Allocation
iv. Customer Allocation
III.
CHARACTERIZATION
a. Broadcast Music Inc v. Columbia Broadcasting System (1979)
i. Before condemning conduct as per se illegal, need to “characterize” the
conduct – implicit in the framework.
ii. To use per se, need to establish that the conduct is “plainly a/c” and “without
redeeming value”
iii. Here, this is not price-fixing in the literal sense
1. Would not expect any mkt arrangement reasonably necessary to
effectuate [IP] rights to be deemed per se illegal
2. Blanket licenses accompany the integration, sale, monitoring, &
enforcement
3. Clearing companies add value to the process
b. Catalano Inc. v. Target Sales - collective refusal to compete on credit terms indisting
from price fixing (refused to deal with beer suppliers on credit; cash only)
c. Texaco v. Dagher (2006) – single firms cannot price fix. When firms pool capital and
share risks, regarded as a single firm.
IV.
MARKET DIVISION – Per Se Illegal
a. Timken – div of mkts by competitors per se violation – group viewed as a cartel and
action is an alternative means of price-fixing.
b. US v. Topco (1972)
i. Classic per se violation is agreement btwn competitors at the same level.
ii. Justification - need mkt division to compete w/ larger chains.
iii. Good intention is not a defense.
1. No authority to determine respective value of competition in a sector
2. Should have made the BMI new product argument (came 9yr later)
c. Palmer v. BRG of Georgia (1990) – straight forward geog allocation per se illegal
d. HYPO – how would Topco have come out under BMI or Sylvania?
V.
OUTPUT RESTRICTION – Collusive Boycott (effort to bet higher price from rival)
a. FTC v. Superior Court Trial Lawyers Ass’n (1990)
i. Constriction of supply to raise price the essence of price-fixing – per se illegal
ii. Social justifications do not make restraint any less lawful
1. Disting from Noerr b/c restraint was consequence of seeking new law
2. O’Brien only held that Court should apply A/T law w/ sensitivity to 1st
Am concerns
iii. “No mkt power” is not a cognizable defense
b. National Society of Professional Engineers v. US (1978) – Professional Services.
i. Sherman Act does not require competitive bidding, but does prohibit
unreasonable restraints of trade.
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A/T SHORT OUTLINE
ii. Preventing competitive bidding illegal under RoR
iii. Defense (quality would decrease) is not cognizable – impedes ordinary give
and take of mkt place by not allowing price negotiations. Not NSPE’s job to
determine whether competition is good or bad.
c. Impact of NPSE on burdens production/proof
i. Per se – only have to prove action is in per se category
ii. RoR – multi-faceted analysis where P gets to intro more evidence
iii. Reframed A/T law around core economic issues.
VI.
DEVELOPMENT OF QUICK LOOK FOR HORIZONTAL AGREEMENTS
a. Evolution of Unreasonableness
i. US v. Trans-Missouri Freight Ass’n (1897) – Every means Every, but did
recognize that common law supported some exceptions
ii. Standard Oil (1911) – reasonableness is intended in S.1
iii. Addyston Pipe – separated naked and ancillary restraints (per se v. RoR)
b. Board of Trade of City of Chicago v. US (1918) – Origins of Rule of Reason
i. Must consider facts peculiar to business:
1. Condition before and after restraint – could still send bids after close,
just temporary restriction on price
2. Nature of Restraint – restrained to small amount of daily business
3. Effect (actual or probable) – no effect generally on mkt price/volume
c. The Quick Look Analysis
i. NCAA v Board of Regents FN39 – “RoR can sometimes be applied in the
twinkling of an eye”
ii. Goal is to cut from RoR Analysis where conduct has obvious a/c
consequences
iii. Common Quick Look Test – burden shifting (Law v. NCAA)
1. P has initial burden of showing adverse effect – quick review shows
harm to competition.
2. D then gets to show pro-competitive effects, must be cognizable and
supported by evidence.
3. P can show that rule not reasonably necessary or can be implemented
using less restrictive means
4. If met, then balance – generally based on weight of the evidence.
d. Board of Regents of University of Oklahoma (1984)
i. TV restriction illegal under quick look
ii. Per se rule not applied b/c of characterization – need some agreement for
product to exist
iii. However, restrictions not linked to the product – removes price competition
and decreases quantity.
iv. Cannot protect weaker product by harming more attractive product – good
motives will not validate an otherwise a/c restraint
v. Mkt power not essential to proof of illegality – absence of mkt power does
not justify restraint
e. Cal Dental Ass’n v. FTC (1999)
i. Quick Look Analysis not sufficient – need more extensive inquiry.
ii. Looking at circum, details, logic of restraint, the object is to see whether
experience of mkt has been so clear that confident conclusion about principal
tendency will follow from the quick look.
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f. Polygram Holding Inc v. FTC (DC Cir 2005)
i. Use Quick Look, not per se b/c might be certain way to limit own venture to
benefit common undertaking, but still see as dangerous.
ii. In determ whether competition restrained, inquiry must be met for the case
iii. JV inherently suspect, due to close resemblance to suspect practices.
iv. Case seems to expand QL to where there may not be actual evidence of a/c
effects, but only a high likelihood.
v. TEST
1. Commision determ whether it is obvious that consumers will likely be
harmed (“inherently suspect” – consid earlier cases and econ theory
2. If “inherently suspect” D must come forward w/ justifications
3. Submit fuller evidence of harm
a. Commission must then address in 1 of 2 ways:
i. Confidently conclude that consumers likely harmed
ii. Provide suffic evidence to show a/c effects likely.
b. D must show actual pro-competitive effects or that benefits
outweigh harms.
g. Non-Cognizable Defenses for Horizontal Restrictions
i. Competition reasonable/destructive (NSPE)
ii. Prices set were reasonable (SCTLA)
iii. No market power (NCAA & SCTLA)
iv. Restraint protected weaker product from stronger product (NCAA)
VII.
DETERMINING WHAT IS CONCERTED ACTION
a. Economics of Modern Cartels – what they have to do to succeed
i. Reach consensus
ii. Deter and punish cheating
iii. Cope w/ new or external threats – mavericks/hold-outs; new entry/subs;
suppliers; buyer resistance.
b. Certain factors make collusion more or les likely
i. # of firms
ii. Product heterogeneity
iii. Excess capacity (yours or others)
iv. Predictable Demand
v. Lumpy Sales/Large Buyers
c. Info Sharing
i. Mere sharing NOT ILLEGAL, nor is agreement to share
ii. Considered a plus factor
iii. Eval’d through rule of reason: common themes:
1. Legitimacy of sharing and decreased risk if smaller mkt share
2. Better off if info is aggregated
3. More likely to be acceptable if data is past info
4. If “benchmark” info, have 3d party do it w/ a template
iv. American Column & Lumber (1921)
1. 90% of members, extensive and detailed data, incl. name of buyer,
seller and price; also suggested prices and production levels; not
made available to buyers
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2. HELD as a conspiracy to fix prices – could be understood as helping
firms to reach consensus and deter cheating.
v. Maple Flooring (1925)
1. 22 members, 70% of US production.
2. HELD to have competitively legitimate purposes
3. Disting from AC&L b/c didn’t ID buyer/seller, didn’t share current
prices or make recommendations.
d. Parent & Sub – Copperweld Corp v. Independence Tube Corp (1984)
i. Parent and wholly-owned sub considered one entity, thus no S.1 scrutiny
ii. Decision w/in a corporation to implement single firm’s policy – common
purpose and should be able to choose own corp org structure
iii. Holding been expanded to: parents and less than wholly owned subs; sister
corps; other intra-enterprise conduct
e. Incomplete Coordination – In re Brand Name Prescrip Drug Litigation (7th Cir 1997)
i. Denied pharmacies discounts, but retained discounts for “preferred buyers”
ii. Cartel may not be tight enough to prevent large, bulk buyers from shifting
demand
1. Single price may not always be profit maxizing
2. Thin profits don’t disprove cartel – could have been thinner
iii. Matsushita’s “no economic sense” test unavailing.
f. Oligopolistic Interdependence – is it concerted action?
i. Posner – YES, in some circum: equiv to negotiation, eventually get a pegged $
ii. Turner – NO, it’s a natural thing for firms to do.
VIII.
INFERRING CONSPIRACY
a. Interstate Circuit v. US (1939)
i. Distrib knew others also being approached and plan would only work w/
concerted action.
ii. This constituted an AGREEMENT.
iii. Unanimity of Action – enough that concerted action was invited and
contemplated and that they participated.
iv. Failed to provide contrary testimony – seen as estab the weakness of any
counter-testimony.
b. American Tobacco v. US (1946)
i. Similar, subsequent actions of competitors can support finding of conspiracy
ii. No formal agreement is necessary – can be found in course of dealing
iii. Important Factors: concentrated oligopoly (community of interest), parallel
conduct, falling cost and declining demand (yet $ increasing) – combo’d show
firms knew what they were doing
c. Parallelism Plus Doctrine – Theater Enterprises Inc v. Paramount (1954)
i. Circumstantial evidence of consciously parallel behavior may have made
strong inroads, BUT
ii. It has not read “conspiracy” out of the Sherman Act entirely.
d. Current Doctrine
i. Circum proof can estab conspiracy, but…
ii. Proof of parallel conduct alone not suffic to estab concerted action. Thus,
iii. Proof of agreement req’s parallel conduct plus other proof.
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A/T SHORT OUTLINE
e. Plus Factors (p310-311)
i. Industry conditions – structure, product characteristics
ii. Firm Conduct – irrational behavior, info sharing, other communications
iii. Past behavior indicating collusion.
f. Approaches to plus factors: Check the box; Link to Conspiracy/what cartel has to do
to succeed; weigh according to past cartel experience.
IX.
X.
PROVING CONCERTED ACTION
a. Invitation to Collude – US v. American Airlines (5th Cir 1984)
i. Mere suggestion of collusion can trigger S.2 violation (attempted monop)
ii. 2 req’d elements – Specific Intent & Dangerous Probability – at time act occur
1. Dangerous Probability – call btwn CEOs and high mkt share
2. Might have been okay if firms were smaller (threshold: 50%)
iii. It is not a defense that plan proved impossible to execute.
b. Pre-Matsushita – Poller v. CBS (1962) – summary procedures should be used
sparingly.
c. Monsanto (1984) – build up to Matsushita
i. Where illegal action appears same as legal action, P must show more likely
than not due to concerted action.
d. Matsushita v. Zenith Corp. (1986) – standard for Summary Judgment
i. Evidence must “TEND TO EXCLUDE THE POSSIBILITY” that the action was
for competitive benefits – “plausibility”
ii. If evidence ambiguous, P must show more at trial.
iii. Conduct as consistent w/ permissible competition as w/ illegal conspiracy
does not support inference of A/T conspiracy. – circum evid + plausibility.
1. Pred Pricing is by its very nature speculative
a. To be rational, must have reasonable expectation of recouping
b. Also uncertain b/c req’s maintaining mkt power
2. Even more difficult when firms have to coordinate
3. Makes no “economic sense”
e. Three factors helf confer coordinated equilibrium
i. Behavior more complex than would be plausible w/o agreement
ii. Justifications given are weak
iii. Opportunity for firms to communicate.
f. Two Situations where Matsushita “no economic sense” test should shield firms
i. Industry structure not conducive to coordination (thus would be irrational)
ii. Could have been achieved by leader-follower behavior, w/o agreement
Expanded Emphasis on Procedural Screens
a. Matsushita’s “plausibility” screen has been extended backward to the pleading stage
b. Twombley (2007)–complaints must rise above speculative level (motion to dismiss)
i. “Plausible” is greater than possible – parallel behavior is not enough; req’s
some facts suggesting agreement
ii. Arg – AT&T break-up firms should have been expanding to other mkts;
defended by saying it was too risky – no req to compete, but can’t not
compete
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A/T SHORT OUTLINE
c. In re Text Messaging Antitrust Litigation (7th Cir 2010)
i. P must meet “plausibility” standard to survive dismissal of suit
ii. Used economically grounded approach – looked at what factors make
conspiracy more or less probable
iii. Plus factors supplement communication, hard-to-understand conduct counts
iv. Direct evidence not essential
d. In re Publication Paper Antitrust Litigation (2d Cir 2012)
i. P put forth suffic evidence to permit reasonable jury to find that higher prices
resulted from agreement rather than independent action
ii. Range of permissible inference depends on plausibility – broader inferences
allowed when theory is more economically sensible.
iii. Factors
1. Structural conditions – commodity prod, few subs, lmt’d #sellers, high
barriers to entry
2. Counter-intuitive pricing
3. Excess capacity (closing mills)
4. Parallel pricing
5. Direct evidence – “we’re a follower”
DISTRIBUTIVE ARRANGEMENTS
I.
II.
III.
IV.
Distinction btwn substitutes and complements
Relevant legal framework
a. Antitrust law (below)
b. State law (eg: dealer location restrictions)
c. Sector specific (eg: petroleum market)
History/Early Cases
a. Dr. Miles (1911) – vertical price restraints unlawful – once sold, cannot control price
b. Albrecht – extended Dr. Miles to maximum RPM
c. Colgate (1919) – weakened Dr. Miles; only applies where there is agreement
d. US v. GE (1926) – may set RPM when there is a genuine principal-agent relationship
e. Schwinn – per se rule for vertical, intrabrand non-price restraints (territorial)
f. Miller Tydings Act (1937) and McGuire Act (1952) – states may auth RPM laws
g. Consumer Goods Pricing Act (1975) – repealed Miller-Tydings and McGuire Acts –
Dr. Miles now back in full force (has to do w/ econ conditions at the time).
h. Monsanto – rasied burden for proving RPM (Cong refused to fund arg for repeal of
Dr. Miles)
i. Business Electronics Corp (1988) – raises Monsanto standard, harder to prove
agreement, on price or price level
j. State Oil v. Khan – abandoned per se rule for max RPM
Vertical Non-Price Restraints – Continental TV Inc v. GTE Sylvania (1977)
a. Restriction per se violation under Schwinn, BUT Schwinn should be overturned.
b. RoR is the standard, and departure is only justified by demonstrable a/c effect
(Northern Pacific)
c. These sorts of agreements are not manifestly a/c (“transaction cost literature” –
Turner)
d. Schwinn did not distinguish actions based on the indiv potential for intrabrand
harm or interbrand benefit
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V.
Recognized Justifications for Non-Price Intrabrand Restraints
a. Induce competent retailers to carry new products
b. Promote existing products
c. Defeat mkt imperfections
d. Insulate mnfctr from product liability exposure
e. Protect mnfctr reputation by ensuring quality.
VI.
Post-Sylvania – P has been successful only when D has interbrand mkt power or there is
not evidence of pro-competitive purposes.
VII.
VIII.
IX.
X.
XI.
Vertical Price Restraints – Leegin Creative Leather Products v. PSKS Inc (2007)
a. Recent (econ) jurisprudence has rejected rationales justifying Dr. Miles’ per se rule
b. Cannot be stated w/ confidence RPM always or most always tends to restrict
completion and decrease output – per se rule would inc. total cost to system.
c. Potential Harms – mnfct cartel; retail cartel; forestall innovation in distribution
d. Justifications
i. Can stimulate interbrand competition by suppressing intrabrand
competitioin.
ii. Encourage retailers to invest in tangible/intangible services/promos
iii. Facilitate new mkt entry by inducing competent and aggressive retailers to
invest in necessary capital/labor.
e. Also allows other pricing programs to be eval’d on their merits
Vertical v. Horizontal – Characterizing the Challenge – Nynex Corp v. Discon (1988)
a. Distribution chain choices are not per se illegal – freedom to switch from one
retailer to another
b. Distinguish case here from Klor’s b/c this is a vertical chain
c. On remand – could still use RoR to estab a/c harm; kickback not an A/T issue.
Post Leegin Process
a. Apply BMI to RPM cases
b. Rule of Reason Standard
c. Screens – mkt power, cartels (producer or retailer)
Legal Issues from the Apple e-Book Decision
a. Parallelism Plus Doctrine
b. Entered same agreement w/ all publishers – resulting in uniform price increases
c. Evid of conspiracy can be found through direct evid (Job’s statements) and circum
evid (goals, shift in model, simultaneous and sudden price increases) – suffic to infer
collective action.
d. Apple’s Args:
i. Does not “tend to exclude”; however, evid here leaves ambiguity (go to jury)
ii. Never intended to conspire; however, good motives don’t allow a/c injury
Distrib relationships in the EU – distinctions from US System
a. More particular categories of agreement articulated
b. EC can exempt indiv agreements/categories
c. Interpreted more broadly than S.1
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HORIZONTAL MERGERS
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
“May be substantially to lessen competition” – no substantive guidelines, left to
agencies/courts to elaborate standards – predictive enforcement mechanism.
S.7 of Clayton only req’s an “appreciable danger” so can satisfy w/ conduct that would
not necessarily satisfy S.1 – eg: “conscious parallelism”
Can harm competition through coordinated, unilateral, or exclusionary effects
Pre-Merger Notification (HSR)
a. Steps:
i. Filing – mandatory notification if past threshold
ii. Initial Waiting Period (30d started at filing)
1. Who gets to look at deal – historical allocation, statutory carve-outs
2. Decide if want more info – 90% of cases end here.
iii. Second Request (30 add’l days after all docs turned over)
iv. Enforcement Choices – fed court for injunction, do nothing, settlement
b. Use other firms and customers for info
c. Generally not resolved through litigation – withdraw and refile, lmt’d divestiture, or
consent decree/settlement
2010 HMG
a. Analysis of competitive effects over mkt structure–can still create rebut presump
b. Recognized multiple methods by which merger can harm competition.
c. Coordinated Effects – relevant evid: behavioral feat, industry char.
EU v. US Merger Enforcement
a. Similarities
i. Mandatory notification of large transactions
ii. Rely mainly on info provided by merging parties – US 2d request more taxing
iii. Similar analytical framework – high evidentiary standard
b. Differences
i. 3d parties can appeal EU decisions to not challenge merger
ii. US agencies not liable for damages if decisions overruled
iii. US has higher evidentiary standard
Enforcement Trends
a. SCT Jurisprudence (1962-1975) – structural view
i. Horiz merger – 4.49% (Pabst)
ii. Vert Merger – 2% foreclosure
iii. Conglomerate – more lenient, but still skeptical (P&G/Clorox)
iv. Efficiencies disregarded
b. Lower Courts Today – Modern View
i. Horiz – strong structural presumption for 3-2, and scrutiny at 5-4 and 4-3
ii. Vert – “subst degree of foreclosure” – usually about 30%
iii. Conglomerate – largely ignored
iv. Strong role for efficiencies
v. HMG – non-binding, but influential – not binding, but quoted back by courts
STRUCTURAL ERA CASES – assoc btwn mkt conc and competitive concerns
a. Brown Shoe v. US (1962)
i. Fear of rising tide of econ concentration – Congressional intent
ii. Control of substantial share of trade in a city may have effect on competition
in such fragmented industry even if only control of a small share.
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A/T SHORT OUTLINE
iii. National chain can insulate mkt from competition in certain areas
iv. Dichotomy in holding – not entirely indifferent to inc. in output/efficiency
b. US v. Philadelphia National Bank (1963)
i. Enjoin merger b/c produces firm with controlling share of the market
ii. Only allowed justification is direct evid that merger does not actually harm
competition.
iii. Bank’s arguments:
1. Necessary to follow customers to suburbs – could expand internally
2. Inc. lending limit allows compet. w/ out of state banks – a/c effects in
one market cannot be justified by pro-compet benefits in another.
3. Will bring business to area – value judgment best left to Congress
c. Van’s Grocery – would result in firm w/ 7.5% of mkt and stong trend toward conc
d. Pabst – 4.49% and strong trend to conc over past 30yr
e. Start seeing shift – rapid conc a key feature, but so is tech dev and lower transport
and commun. Costs – leading to higher output and lower price.
IX.
X.
DECLINE OF THE STRUCTURAL PRESUMPTION
a. US v. General Dynamics (1974)
i. Not enjoin b/c mkt share was improperly calculated – mkt share should be
based on uncommitted reserves (determ firm’s future ability to compete)
1. Was initially based on current sales – coal producers
ii. Not contesting validity of presumption, but need for proper calculation
iii. Case has been read broadly by lower courts to permit wide ranging analysis
of ability to compete.
b. Boeing-McDonnel Douglas Merger (1997)
i. FTC clears w/o conditions b/ MD no longer able to compete for future sales –
customer interviews, biggest purchaser didn’t consider them for new order
ii. EC clears w/ conditions (give up exclusive contracts) – political decision.
c. Structural Presumption in 1982 HMG
i. Mkt Conc is highly influential but NOT outcome determinative
ii. Precedence from SCT – mkt structure can create virtually conclusive
presump of illegality, rebutted by showing improper calculation.
iii. Focus on lower court decisions – raised mkt share thresholds and gave D
more ability to rebut presumption.
ECONOMICS OF MODERN MERGERS
a. Substitution – proper market is defined by reasonable interchageability of use
i. Step 1 of analysis is to ID mkt participants and then assign mkt shares
b. Entry (can be used to rebut prima facie case of illegality)
i. Early Case – Rome Cable – SCT forecloses use of efficiency arguments
ii. GD – ease of entry could be used to rebut a/c effect derived from mkt stats
iii. WMI – 2d Cir treats mkt entry as a trump card
iv. Entry Analysis
1. Timely – rapid enough to make a/c acts unprofitable
2. Likely – will it really happen?
3. Sufficient – if single firm, must replicate at least scale and strength of
one merging firm; mult firms operating at smaller scale may be suffic
v. US v. Waste Management Inc (2d Cir 1984)
1. Ease of entry can rebut prima facie illegality by showing no a/c effect
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A/T SHORT OUTLINE
XI.
2. The mkt def was artificially restricted to current firms even though
subst competition would react quickly.
3. Case signaled that courts willing to embrace modern econ thinking
w/o SCT guidance.
c. Efficiencies.
i. Must be “cognizable”
1. Substantiated and verified
2. Merger specific (could not e achieved otherwise)
3. Cannot arise from an a/c reduction in output or service
ii. Limited usefulness w/ high concentration
iii. HMG seems to focus on consumer welfare (over aggregate welfare)
d. Mavericks – don’t have to lower their price, but only refuse to raise price
i. ID’ing mavericks
1. Past conduct
2. “Natural Experiments” that ID firms restraining movement
3. Features of mkt that tend to suggest firm would prefer lower price.
ii. Signif of Maverick
1. If involves maverick, will lose party constraining price
2. Non-maverick – show affects mavericks’ incentive (eg: excl boycott)
e. Failing Firm Defense
i. HMG allows acquisition regardless of potential harm, if:
1. Unable to meet financial oblig and unable to reorganize efficiently
2. Unsuccessful, good-faith effort to sell assets to buyer who would keep
them in mkt and would be a less severe threat
3. Assets would exit the mkt absent the merger
ii. These req’s are strictly construed – “weak firm” will not satisfy them
iii. Courts have allowed analogous “failing division” defense
f. Measuring Market Concentration – concentration and increase
i. Not measure capacity if committed or profitably employed outside mkt, such
that they wouldn’t shift in response to price increase
ii. HHI Safeharbors – unlikely to challenge if:
1.
2.
3.
DEFINING THE MARKET
a. Mkt Def needed to be able to measure price effects.
b. Measured by reasonable interchangeability of use.
c. Submarkets – exam practical, industry, and public recognition – related to buyer
substitution patters
d. Price Discrimination, often by use or location
e. Cluster Market – indiv services commonly recog as relevant product mkt; deviates
from demand substitution approach.
f. US v. H&R Block (DDC 2011) – collusive conduct.
i. Holding – proper mkt is “online tax prep” submarket
ii. Outer bounds of product mkt defined by reasonable interchangeability
iii. Broad overall mkt may contain smaller relevant mkts
1. Ask hypothetically whether it would be profitable to have monopolist
over given set of substitutable products.
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2. Just b/c firms compete does not mean they should be in the same mkt
iv. Here, DDIY the relevant mkt – looking at ordinary corporate acts
1. Assisted tax prep – exclude b/c of price disparity, usually held as
separate business from DDY, hybrid products not mature enough yet
2. Manual tax prep – exclude b/c function experience diff, such that
subst. # of customers would not switch.
v. Coordinated Effects – presumption: HHI inc. by 400 to 4691; history of
collusion (lobbying); would decrease incentive to compete
vi. Burden shifts to D to produce evidence of barriers to collusion – transparent
pricing; historical acts; w/o merger would have race to zero
g. FTC v. Cardinal Health (DDC 1998) – collusive conduct
i. Relevant market should be wholesalers only (submarket)
ii. Although all forms of delivery compete at some level, mere fact firms
compete does not mean they should be included in the same, relevant mkt
iii. Services provided make wholesalers unique – services not currently suffic
provided by others to serve as real sub – based on firms’ internal records
iv. Anticompetitive b/c
1. Excess capacity pushes down prices – merger wanted to elim that
excess capacity
2. Continuing competition in industry after prev merger rejected, which
led to decreased in prices (shows mkt likely for collusion)
v. Indicative that courts can consider a large range of factors.
XII.
COLLUSIVE EFFECTS
a. Consider what behavior and mkt structure facilitates collusion – 3 elements
i. Mkt conc is high and increasing
ii. Mkt shows signs of vulnerability to coord conduct
iii. Merger may enhance that vulnerability.
b. US v. Baker Hughes (DC Cir 1990)
i. HHUDR mkt naturally high conc w/ few sales of large machinery and mkt %
changes notable from year to year – DOJ argued coord effects by mkt structur
ii. However, structure/volatility show that coord not taking place – mkt share
and conc are just a starting point, need other factors (struc presump weak)
iii. “Clear showing” is NOT necessary for rebuttal of structural presump – relies
on totality of circumstances approach – GD is a mandate to use many factors
iv. Entry not req’d to be “quick and effective” – timely, likely, sufficient
v. Here, barriers not so high as to impede entry – have recent entry and threats
of new entry (eg: from Canada); low barrier, threat of entry can be enough
vi. The more evidence gov’t submits, the more evidence req’d by D for rebuttal
c. FTC v. HJ Heinz (DC Cir 2001)
i. Sort of a qualification of Baker Hughes
ii. 3 to 2 merger should be enjoined. 3 steps to analysis of issue on merits
1. Merger would produce firm controlling undue % of mkt and have
signif concentration
2. To rebut, D must produce evid showing mkt stats inaccurate pic – fails
a. Little competitive loss b/c firms don’t really compete
b. Effects offset by efficiencies
c. Enable H to innovate
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A/T SHORT OUTLINE
3. Burden shifts to gov’t to produce add’l evidence of a/c effects
iii. Structural presumption still strong at 3 to 2 – barriers and conc are recipe for
price coordination, so need strong rebuttal evidence.
d. Hospital Corp of America v. FTC (7th Cir 1986)
i. Holding – FTC correctly balanced factors; enjoin merger
ii. Ultimate question is whether merger is likely to facilitate collusion.
1. Structural – 11 to 7 merger, with increase from 14% to 26%
2. HCA would still set prices for them all (even though indiv entities)
3. TN Cert of Need estab high barriers to entry, and others can object
4. Demand for hospitals/services highly inelastic – high value on health,
docs make decisions, insurers pay.
5. Trad of cooperation btwn hospitals (insurer reimbursement issues)
iii. Defenses – all rebutted
1. Each participant heterogeneous, b/c diff specialties – makes collusion
more difficult, but NOT impossible
2. Econ and tech changes – may actually make collusion more imperative
XIII.
UNILATERAL/EXCLUSIONARY EFFECTS
a. Need enough mkt power to raise price by themselves – next sub is relatively distant
b. Main application is differentiated products (can also be homogenous though)
c. Relevant Economics – Williamson Diagram.
i. Recapture/Repositioning – upward price pressure (closeness of subs)
ii. Reduction in MC/efficiencies – downward pressure
d. Early Case – Kraft Foods
i. Rejected unilateral effects claim b/c of compet w/ many other products – lost
sales likely diverted among many other products. 5 types of evidence
1. Physical characteristics/image
2. Customer testimony about buyer substitution
3. Survey data about customer base/demographics
4. Extent to which firms monitor and respond to movements of others
5. Econometric study of demand – low elasticity in mkt
e. FTC v. Staples (DDC 1997)
i. FTC sufficiently showed theory of likely harm by unilateral effects
ii. Mkt defined as “consumable office supplies through office superstores”
1. Sensitivity to price change – higher prices in mkts where firms don’t
compete (other sellers don’t effect pricing_
2. Uniqueness of office superstores – diff appearance, size, format,
variety, customer base
3. Industry/public recognition – eval’d own competition as that w/ other
superstores
iii. Probable effects on completion – 3 to 2 merger would recapture much of the
diversion
iv. Efficiences – not persuasive here
1. Must show FTC’s evid gives inaccurate picture of probable effects –
evidence overstated cost savings and pass throughs
v. Relied on econometric models and internal docs
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A/T SHORT OUTLINE
f. Oracle
i. 3 firms dominate mkt for “enterprise software” (Oracle, PeopleSoft, SAP) –
excludes 3 toher firms due to customer testimony (Lawson, AMS, Microsoft)
ii. To prevail on differentiated products unilateral effects claim P must prove
relevant mkt in which merging parties would have dom position
iii. Court insisted on narrow mkt, but expressed skepticism it could be defined in
a principaled way – avoid “localized competition analysis”
g. Whole Foods
i. Principal Issue – mkt definition “premium, natural, and organic
supermarkets” refined to supermarkets more generally.
1. Other supermkts seeking to offer natural/organic products
2. Pricing didn’t differ based on presence of each other
ii. Unilateral Effects
1. WF and WO close subs
2. Evidence of 20% price increase
3. Project Goldmine – WF would recapture most WO diversion
4. Evidence:
a. Qual Evid – CEO statements
b. Quan Evid – “best econ data” ever seen
iii. Ct App found that Dist Ct wrongly focused on marginal customers, and
overlooked committed customers – should have relied more on FTC’s evid
h. CCC (2009) – suggests that mkt def may not be req’d to prove unilateral effects
VERTICAL MERGERS
I.
II.
III.
Primarily an exclusionary conduct issue – forecloses competition from mnfct/retail mkt
Early Foundation Cases – opposed merger even when only small foreclosure (2%)
a. Autolite (1972) – SCT refused to consider enefits of merger
b. Brown Shoe (1962)
i. Every vert merger forecloses, but Clayton only forbids those whose effect
may be to subst lessen competition
1. Thus size of the mkt foreclosed is important
2. But if neither to de minimis or monop, mkt share cannot be determ
3. Examine various econ and hist factors, incl. nature and purpose
4. Type of restraint matters – exclusive dealing for lmt’d term less
harmful than tying b/c “at behest of customer”
ii. Here, no merger btwn mnfctr and retailer could involve larger potential
foreclosure (would be about 1-2%)
iii. Remaining competitive vigor cannot immunize merger where industry trend
is towards oligopoly.
Vertical Analysis Since 1980
a. Would transaction harm horiz competition in either upstream or downstream mkt
b. Theories by which competition may be harmed
i. Raising “two-level entry barriers” – Modern Theory
1. Incentive to foreclose?
2. Ability to forecolose?
3. Countermeasures?
ii. Could facilitate horiz collusion
iii. Evading rate regulation
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A/T SHORT OUTLINE
MONOPOLY – SINGLE FIRM EXCLUSIONARY CONDUCT
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
S.2 has 3 offenses – monopolization, attempt, conspiracy
Diff btwnn bringing case under Sherman Act (“dangerous prob of actual monop”) and
Robinson-Patman (“reasonable probability”)
Monopoly Leveraging – use monop power in 1 mkt to gain advantage in 2d adjacent
mkt
Monopolization Elements
a. Possession of monopoly power in relevant mkt (70%) – 90% stronger threshold
b. Willful acquisition or maintenance of power (“excessive pricing” not enough)
Attempted Monopolization Elements
a. Substantial Market Power (~50%)
b. Specific Intent (inferred from conduct) – Spectrum Sports
c. Dangerous Probability of Success (mkt structure – eg: high barriers)
Traditional Approach – measure foreclosure and compare to threshold (quantitative)
Modern Approach – Raising Rivals Costs (qualitative analysis)
a. Raises MC or makes it more difficult for competitor to sell product
b. Incl. practices beyond complete foreclosure, excluded firm need not be incumbent
c. Mere foreclosure not enough – need to show remaining firms could and would take
advantage – need to inc prices and dec. output b/c exclusion may not work
i. Alternate ways for firm to attain supply/distrib
ii. Other firms may not go along with it – cheating
iii. Exclusion may be unprofitable.
d. Need to also show foreclosure not outweighed by pro-competitive benefits.
Modern Analysis
a. Has firm been excluded
i. Common focus on whether excluded firm has practical alternatives
ii. Is there incentive to foreclose? – action
iii. Countermeasures rival can take?
b. Can firm obtain/keep mkt power? – ability to foreclose and make it profitable
c. Any legit business justifications?
Lorain Journal (1951) – raising rivals costs
a. Surrounding circum of restraint are important – most subst is the monop on
newspapers that made it indispensible for advertising.
i. If papers colluded, not illegal – no reason should be diff here
b. Framework Applied
i. Limited radio station access to key inputs – excluded firm
ii. Elim of radio station would leave journal w/ monopoly
iii. Desire to maintain mkt power is not a legitimate justification.
c. Advertising restriction an improper use of monopoly power
Origins of Power + Conduct Framework
a. US v. US Steel Corp (1920) – suggests permissive view of dom. firm behavior
b. US Machine Corp (1953) – establishes thresholds for Power Prong
i. Law does not allow entity to maintain mkt control through non-econ
justifiable/inevitable practices
ii. Judge Hand’s Benchmarks:
1. >90% YES (Standard Oil)
2. 60-64% - MAYBE
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A/T SHORT OUTLINE
XI.
XII.
3. 33% - PROB NOT (US Steel – by time of trial, shrunk from 85-90% to
40%)
c. US v. Aluminum Co of America (2d Cir 1945 – sitting as SCT)
i. Alcoa possessed mkt power
1. Internal Consumption Included – most ingot used to produce product,
so any ingot used to produce own product is not put into mkt – could
and would switch easilty if price changed
2. Secondary Ingot is considered in making production decisions, so in a
way producer controls – exclude from mkt
3. Within limites of tarrit and import costs, Alcoa free to raise price so
imports not included
ii. Power alone not suffice – need to have acted to monopolize (reject No Fault)
1. Alcoa not a passive recipient of monopoly
2. Not inev would always anticipate inc. in demand & be prep’d to supply
iii. Remedy – by time of remedy, already have structural shift – gov’t built plants
create 2 new rivals (Kaiser and Reynolds) – structural relief rejected
d. Effects of Alcoa
i. Broad definition of exclusionary behavior
ii. Such broad definition not used today.
MODERN THEORY
a. Increased concern w/ efficiency
b. Improper conduct requirement bolstered substantially
c. Analysis is a malleable standard that can expand/shrink:
i. Presence of mkt power
ii. Improper conduct to retain mkt power – broad discretion for product
development, pricing, and distribution decisions
iii. Appropriate remedy
d. United Shoe Machinery (D.Mass 1953) – efficiency rationale good: quality control,
service product improvement feedback
e. US v. EI DuPont de Nemours & Co (1956)
i. Most cited def: “monop power is the power to control prices or exclude
competition”
ii. Other wrapping materials pose sufficient competition to find “flexible
packing materials” as the relevant mkt
iii. Focus on interchangeability of demand – what is an acceptable sub
1. Depends on cross-elasticity of demand – largely gauged by similar
uses – considering price, characteristics, adaptability
iv. Cellophane Fallacy – may have already been charging monop pricing
ATTEMPTED MONOPOLIZATION
a. Swift Co v. US (1905) – if there is specific intent and dangerous prob, if unchecked
such conduct will ripen into monopoly
b. Can adjust inference drawn from mkt share depending on height of entry barriers
c. Monopoly Broth Theory (Continental Ore) – look at whole pic and indiv acts
together may be enough when indiv acts wouldn’t on their own – “critical mass”
d. Spectrum Sports v. McQuillan (1993)
i. Dangerous Probability hinges on Proximity and Degree – intent cannot
establish “dangerous probability:”
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A/T SHORT OUTLINE
XIII. Durable Goods Monopoly and Market Definition Issues – aircraft hypo
a. Used/Recycled Products – are they considered close subs in the mkt?
i. Secondary producer can constrain prices, but is anticipated at initial prod
ii. Aircrafts have long usefule lives (~30yr)
b. Can Monopolist commit to high future prices – need to price discrim by time (need
to ensure consumers won’t shift buying patterns
i. Considerable inventory of used aircrafts
c. Excess Capacity as Barrier to Entry – “strategic entry deterrence” – great risk but
great reward.
i. Importance of having 2 (or more) rivals.
XIV.
PREDATORY PRICING
a. Early Cases: 1950s and ‘60s – could use deep pockets to finance below cost sales
b. Utah Pie v. Continental Baking (1967) – condemned behavior; charging well below
what it did other geographic areas.
i. UP showed enough to sustain jury verdict – charged less than direct cost plus
overhead allocation; created declining price structure; did so w/ a/c intent
c. Schools of Thought
i. Cost-Based School – based on AVC
ii. Recoupment – only if mkt structure would permit supracompetitive prices to
recoup, then consider rel. btwn cost and price.
iii. Per Se Lawful
iv. Game Theory School – full, fact-specific analysis
d. From mid-70s to early-90s, courts generally accepted that price-cost tests apply
e. Brooke Group v. Brown & Williamson Tobacco Corp (1993) – Reformulated Theory
i. Insuffic evid to prove B&Ws volume rebates furthered pred pricing scheme
ii. Establishes a 2-step test (mkt power issue considered in prong2):
1. Below appropriate level of pricing
a. Above cost but below industry norm is not sufficient
b. SCT didn’t specify what cost to use, most courts use AVC
2. Recoupment (which incl. mkt power analysis)
a. Must be able of producing intended effect on rival (raise price
or exit mkt) – req’s understanding extent/duration of conduct,
rival’s financial strength, and firm’s incentives
b. Must obtain high enough mkt share to set high price for long
enough (req’s an output restriction – here, output inc, so price
inc. could be due to increase in demand)
c. Harder to prove w/ conscious parallelism (esp. in mkt w/
changing conditions)
iii. Could prove restraint in sense output didn’t inc. as quickly as it should have
f. Weyerhaeuser v. Ross-Simmons Hardwood Lumber (2007) – predatory bidding
i. Must prove that bidding led to below cost pricing of output and that
recoupment was likely – Brooke Group prongs
XV.
NON-PRICE EXCLUSIONARY CONDUCT
a. Aspen-Kodak Rule for Non-Price Dominant Firm Conduct
i. Substantial market power
ii. Conduct that injures consumers/rivals (esp. if change in past practice)
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A/T SHORT OUTLINE
iii. Burden shifts to D for justifications.
b. Refusal to deal often arises in 3 patterns
i. Dom firm threaten to cease cooperation if firm estab a rel w/ competitor (LJ)
ii. Challenge to dom firm’s attempt to w/draw from existing rel. (Aspen Skiing)
iii. Essential Facilities (Trinko)
1. Control of EF by Monopolist
2. Inability of competitor to reasonably duplicate EF
3. Denial of use of EF to competitor
4. Feasibility of providing access to EF
c. Refusal to Deal – Verizon Communications v. Trinko (2004) –no general duty to deal
i. Firms should not be forced to cooperate b/c it could lead to collusion
ii. Doesn’t mean right not to cooperate is unlimited
iii. Unilateral termination of agreement that is a willingness to forsake profit for
anticompetitive goal (Aspen) is the extreme
iv. A general refusal to deal does not fit into that framework
v. Essential Facilities Doctrine does not apply – not recognized and where
access to exist serves no purpose.
d. PacBell v. Linkline – absent duty to deal and absent satisfying BG prongs, price
squeeze is not cognizable.
e. Aspen Skiing v. Aspen Highlands
i. Dominant firm has no duty to cooperate w. smaller rivals so long as there
exists a legit business justification for refusal (improper conduct)
ii. Right to refusal to deal not unqualified – need to consider effects on:
1. Rival – tried to protect self but couldn’t compete
2. Own firm – was willing to forego ticket sales to hurt competitor
3. Consumers – preferred all mountains pass
iii. Usually seent at or near bounds of S.2 and confined to facts – 7th Cir: “where
cooperation is indispensible to effective competition”
f. Kodak – Aftermarkets
i. Profitability depends on lost sales in both mkts – will lose sales if ppl
consider lifetime costs
ii. Improper conduct – change in business practice
iii. Justifications – quality control: good argument, but no supporting evidence
iv. Seems to foreshadow use of post-Chicago School – efficiency, broader use of
anticompetitive conduct, facts more important than efficiency.
g. US v. Microsoft (DC Cir 2001)
i. Analytical Framework
1. P has to show – monopoly power and theory of a/c harm (less
reliance on trad. categories)
2. D’s rebuttal/justifications
3. Balancing
ii. Direct proof of mkt power rarely avail – more typically rely on mkt structure
(95% - 80% if Mac included)
iii. Mkt Definition
1. No competing products now or in the likely future
2. Non-Intel O/S (Mac) – won’t switch b/c of costs and less apps
3. Non-PC based (handhelds) – don’t perform same functions
4. Middleware – not enough interconnection t foreseeably replace O/S
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A/T SHORT OUTLINE
5. Signif barriers mean that mkt share is an approp stat – consumers
prefer O/S with lots of apps, and developers prefer O/S with existing
customer base
iv. Dominance is being unlawfully maintained – thwarted distrib of rival
browser by incorporating it into hardware preventing mod/removal
v. Justification of valid copyright fails b/c changes to browser would not alter
stability or consistency of program – not a tech necessity here.
vi. Outcome of Case
1. No liability for alleged invitation to collude
2. Liability for exclusive dealing with OEMs/ISPs and for creation of
incompatibility
3. Note – no balancing takes place
4. Remanded on Tying and for the Remedy
h. Bundling
i. LePage’s Inc v. 3M (3d Cir 2003) – no Brooke Group analysis
1. Mere fact pricing is core of issue doesn’t make it a predatory pricing
claim
ii. Cascade Health Solutions v. PeaceHealth (9th Cir 2008)
1. Bundling can provide benefits for both
a. Buyers – get more for less, better match consumer pref
b. Sellers – lower production costs
2. Thus, needs a case-by-case evaluation of bundle for legality.
3. Bundling considered a/c when below “an approp measure of D’s
costs”
a. Low prices benefit consumers so long as above predatory
levels (BG)
b. Given widespread use of bundling, above cost pricing is a
necessary prong.
4. Measured by “discount attribution standard” (need to prove)
a. Full amount of discount allocated to competitive product
b. If resulting price below incremental cost, may not be found
exclusionary
c. Legal unless has potential to exclude hypothetically equally
efficient producer.
5. Incremental Cost measured by MC or AVC
iii. Loyalty Programs
1. 2 methods – bonus paid per sale OR bonus paid when pass threshold
2. British Airways
a. A/C Conduct – rebate system diverted sales away from
competing airlines by inducing agents to commit all or most
efforts to BA tix
b. Requisite harm can take the form of either injury to consumers
or injury to competitors and the competitive process
c. Can infer consumer injury from injury to competitive process
d. ECJ on Proof – can be actual or likely harm; provided adequate
factual basis to satisfy both; rivals cannot replicate bonus
system
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A/T SHORT OUTLINE
e. BA lacked cognizable justifications
i. Incentive to achieve occupancy to make profits
ii. Agents not “forced” to go along with plan
1. No need for agreement to specify exclusivity
2. Can infer exclusivity from agreement structure
iii. No proof of adverse effects on consumers/competitors
1. Injury inferred from damage to competitive
process
f. In the US (2d Cir) – BA hs right to expand sales, other airlines
cont. to grow, o evidence of consumer harm
i. Cannot prove abuse of dominance or recoupment
REFUSAL TO LICENSE IP RIGHTS
I.
II.
Up to 1970s – suspicion of IPR – seen as creating a monopoly
Modern Approach – policy complements (preserve incentive to innovate)
a. Mkt power depends on avail of subs, not on holding a patent
b. Image Tech Services v. Eastman Kodak (9th Cir 1997)
i. Assertion of IPR presumptively legit justification for refusal to deal
ii. However, here it is only a pretext
1. Refusal involved thousands of unpatented parts
2. Subjective intent – justification came about afterwards
c. CSU v. Xerox (Fed. Cir. 2000) – push back against 9th Cir
i. Only examine subjective intent of firm if IPR obtained by unlawful means or
refusal used to gain monopoly power beyond patent’s scope
d. IPR in EU – only deemed abuse of dominance under exceptional circum, defined by:
i. Properly characterized as refusal to deal
ii. Refusing party is dominant
iii. Input is indispensible to particular activity
iv. Refusal likely to have negative effect on competition
v. Refusal not objectively justified
vi. Must use license to innovate
e. FTC v. Actavis (2013)
i. FTC Alleges
1. Agreeing to share in monopoly profits (conspiracy to monopolize?)
2. Agree to abandon patent challenge
3. Refrain from launching low-cost generic competition (no req. to
compete but cannot collude not to compete).
ii. 11th Cir dismissed complaint under “scope of the patent” test
iii. 5 considerations why FTC suit should be allowed to continue
1. Specific restraint has potential for genuine a/c effects – inflated prices
2. A/c effects may sometimes prove unjustified – but such defenses are
best put forth at trial, rather than dismissed per se
3. Where reverse payment threatens unjustified harm, likely has mkt
power
4. More feasible than 11th Cir believes – size of unexplained reverse
payment can provide workable surrogate for patent’s weakness
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A/T SHORT OUTLINE
5. Fact large payment risks A/T liability doesn’t prevent settlement –
may settle in other ways like other industries do.
iv. These consid trump the one contrary consid of a policy promoting settlement
v. Should thus analyze under RoR b/c effect is not entirely obvious to justify a
per se or quick look approach
1. Likelihood of a/c effects depends on nominal mount, amount in
relation to antic future litigation, independence from other services
2. Up to lower courts to structure the analysis
vi. Dissent – correct test is scope of the patent
1. A/T case will come down to having to litigate validity of the patent
anyway
2. Large settlement not a good proxy for validity b/c may result in riskadverse party
3. Patent law is about long-term innovation - rule of reason analysis is
not designed for such judgments
EXCLUSIONARY GROUP BOYCOTTS
I.
II.
Early cases
a. Eastern State Retail Lumber Dealer’s Ass’n (1914)
i. Generally have right to deal with who you want, BUT
ii. When begin conspiring to obstruct free course of commerce and suppress
competition, firms exceed that lawful right
b. Fashion Originator’s Guild of America v. FTC (1941)
i. Condemned regardless of direct relation to price fixing (dec. output)
c. Klor’s v. Broadway Hale Stores (1959)
i. “Long held in the forbidden category”
ii. Justification: numerous retailers remain – NOT adequate (should have
offered free-riding rationale)
d. Cased do not provide a coherent framework for differentiating collusive boycotts
that are plainly a/c form those with some legit justification
Contemporary Analysis
a. Northwest Wholesale Stationers Inc. v. Pacific Stationary Printing (1985)
i. Older Case Law – per se rule applies only with a showing of mkt power or
control over essential element
ii. Per se rule applies only when practice facially appears to be one that would
always tend to restrict competition – depends on familiarity w/ restraint.
1. Coop arrangements seem generally designed to increase efficiency
a. Economies of scale for purchasing and warehousing
b. Assured supply
2. Exclusion from coop does not always show an a/c animus
iii. Exclusionary boycott illegal only if
1. D “possess mkt power or unique access to a business element
necessary for effective coop”
2. Absence of valid justifications
b. Toys R Us v. FTC (7th Cir 2000)
i. Exclusive sales made it more difficult for consumers to coparison shop and
insulated TRU from price competition – hub and spoke theory
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A/T SHORT OUTLINE
c. JTC Petroleum v. Piasa Motor Fuels (7th Cir 1999) – exclusionary group boycott
i. 2 level cartel – producers and applicators –A gets P to enforce and exclude
ii. Justification a pretext b/c were paying in cash
d. US v. Visa USA Inc (2d Cir 2003)
i. Exclusion by JV of other network competitors from members is illegal
ii. New Framework
1. Conspirators have mkt power
2. Conduct has substantial adverse effect on competition
3. Burden to D to provide justifications
4. P must show restraint not reasonable necessary OR may be a less
restrictive alternative
iii. Relevant Mkt and Mkt Power
1. Network services – other forms of paymnt not considered reliable sub
2. Visa & MC jointly and separately have mkt power
iv. Anticompetitive Harms
1. Exclusionary rule leaves there to be only 2 competitors – denies
access to ~70% of banks, shrinking # of avail cards
2. Stunts product development
v. Justifications – promotion of cohesion, but undercut by actual practice
1. No harm overseas where no exclusionary program
2. Already diluted b/c V can use MC, and vice-versa
3. Citibank offers Visa and Diners
vi. Case had no mention of group boycotts or per se rule.
TYING
I.
II.
Early cases – per se illegality
a. IBM – justifications not rejected outright, but rejected b/c unsupported
b. Int’l Salt – explicitly estab per se treatment
i. May impose reasonable restrictions designed in good faith to minimize
burdens and assure satisfactory operation
ii. BUT, restrictions here broader than necessary
c. Lower courts did recognize some exceptions – US v. Jerrold Electronics (EDPa 1960)
– new products
Modern Theory Economics
a. Anticompetitive Effects
i. Equivalent of paying a higher price
ii. Foregoing choice/consumer preference
iii. Evading rate regulation
b. Pro-competitive uses
i. Quality control (aftermarket servicing, new products)
ii. Reduce production/distribution costs
iii. Prevent excessive markups of complementary goods
iv. Consumer convenience/simplicity
v. Undermines Cartels – discount on 2d product equates to cheating
c. Ambiguous Competitive Effects – price discrimination (Xerox – metering)
i. Positive – increase output
ii. Negative – transfer consumer surplus
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A/T SHORT OUTLINE
d. Raising Rivals Costs Theory – force 2 stage entry; denies potential rivals needed
experience to enter
III.
Modern Test for per se violation– Jefferson Parrsih
a. 2 distinct products/services
b. Conditional sale
c. Seller must have “appreciable economic power” in tying product, such that Forcing
is likely
d. Arrangement must affect “subst volume of commerce in tied mkt” – proxy for
adverse a/c effects
IV.
Jefferson Parish Hospital District No. 2 v. Hyde (1984)
a. Not a per se violation b/c there is no forcing; also unreasonable under RoR
b. Whether one or two products exists depends on the character of demand (not their
functional relationship_ - is there suffic demand for purchase of anestehesiological
services separate from other hospital services? – YES
c. Essential char of invalid tying is exploitation of control over tying product, enabling
forcing the purchase of tied product
i. Pref for closest hospital doesn’t estab forcing – 70% residents go elsewhere
ii. Lack of price/quality competition does not create forcing
iii. Lack of price consciousness (3d party payors will not force consumers to
take services they don’t want.
V.
US v. Microsoft Corp (DC Cir 2001) – software platform tying should be eval’d under RoR
a. Not enough experience to classify these restraints as per se illegal
b. Separate Products Inquiry
i. Answer turns on whether there is suffic demand for tied product separate
from tying product – efficient to offer products separately?
ii. Eval based on direct evidence (what do consumers do when faced w/ a
choice) and indirect (how do firms w/o mkt power behave)
iii. If competitive firms always bundle, then single product – if there were no
efficiencies then firms wouldn’t do it
iv. All major O/S producers bundle browsers – also sell non-tied versions
c. If a per se analysis were used, first to merge 2 prev distinct functions or elim the
need for the second risks being condemned
PRODUCT DESIGN AND DEVELOPMENT
I.
II.
III.
Liability for deliberate efforts to alter design/interface when there is no valid tech
justification
Berkey Photo v. Eastman Kodak (2d Cir 1979) – generally firms have broad freedom to
design and intro products as they wish
IBM – rejected case where design choice made to improve quality of machines, even
though one aim was to frustrate culpability (design was okay)
a. No duty to reveal new interface designs.
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A/T SHORT OUTLINE
REMEDIES
I.
II.
III.
Conduct remedies freq. imposes, but not favored b/c don’t do anything to unravel
dominant firm behavior
a. United Shoe Machine Corp (1954)
i. Failed to implement divestiture
ii. SCT treats mkt share as sole index of remedial effectiveness
iii. Ignores entry, profitability, innovation
Divestiture orders most common
a. Esp in mergers and monopoly where power attained through merger
b. Drastic when done outside these narrow circumstances – destroys efficiencies
c. Difficult to administer – attract suffic buyer at reasonable price
US v. Microsoft Corp (DC Cir 2001)
a. When deciding remedy, must hold evidentiary hearing for disputed facts and
provide adequate reason for remedy
b. Prediction about future events is not a prediction any less than nay other prediction
about a factual dispute
c. Generally only use divestiture where heart of violation is inter-corp combo/control
d. Mere exclusionary act does not itself justify full feasible relief.
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